Analysts Expect Gold Market To Hold Recent Gains Next Week

U.S. economic data next week is not expected to shed any new light on the state of the economy and as a result gold prices should at least hold on to their gains after the first full week of trading in 2015, according to some analysts.

Analysts added that continued focus on the European Central Bank’s monetary policy, concerns about the impending Greek elections and geopolitical fears should continue to support the yellow metal in the near-term.

Comex February gold futures settled Friday at $1216.10 an ounce, up $32.10 or 2.7% from the Jan. 2 opening price of $1,184 an ounce. At the same time March silver futures settled the week at $16.419, up 68.9 cents or more than 4% since last Friday.

Not only did gold prices manage to start the week on solid footing but some analysts pointed out that it managed to add to its gains following a not surprising December nonfarm payrolls report. Friday U.S. Labor Department said that 252,000 jobs were created last month, slightly higher than consensus estimates of around 245,000 jobs.

“I was expecting to see some profit taking following the employment numbers,” said Adrian Day, president of Adrian Day Asset Management. “We had a good rally all week but we haven’t seen any profit taking.”

While no major rally is expected next week, the fact that gold was able to close above the key psychological area of $1,200 an ounce is a positive sign for the marketplace, he added.

Although the headline employment number was positive, analysts and economists have noted that wage growth was down, rising only 1.7% for the year.

Sean Lusk, director of commercial hedging with Walsh Trading, said that the data shows that inflation is still not a concern for the Federal Reserve and as a result interest rates are going to rise much slower than markets are currently expecting.

Lusk is also expecting gold to move relatively sideways next week but added that the outlook is slowly turning up.

“I don’t think we will be moving higher right away but I also don’t think we will be seeing new lows anytime soon,” he said. “We had a good start for the first week of the year and I think markets are going to be range bound.”

Lusk said it will be important for gold investors and traders to keep an eye on equity markets as the fourth-quarter and year-end earnings season kicks off next week. He noted that one of the reasons gold did well last week was because equity markets sold off sharply, driving demand for safe-haven investments.

“If stock markets fall apart again then we are going higher in gold,” he said.

Collin Cieszynski, senior market analyst at CMC Markets, agreed that gold prices will remain above the $1,200-an-ouce level as markets just generally “stew” over geopolitical concerns in Europe. He continues to expect that gold priced in euros will continue to dominate market moves.

“Overall I’m generally bullish on gold. I think you will see it trade off the back and forth of what the ECB will do,” he said.

Cieszynski added that the ECB doesn’t meet until Jan. 22 so all the information next week will be based on expectations, adding volatility to the marketplace.

Looking at data in the U.S., the week starts out relatively slow but picks up Wednesday with the release of December retail sales and the Federal Reserve Beige Book. The next day, the New York Federal Reserve and the Federal Reserve of Philadelphia release their regional manufacturing numbers for January. Finally the week ends with the release of consumer price inflation data.

Avery Shenfeld, senior economist at CIBC economics said the data doesn’t shed any new light on U.S. economy but the Consumer Price Index will be reminder that “inflation will be as tame as everybody is already assuming.”

“How low can it go? That’s the big question for inflation over the coming months, particularly given that the oil price slump doesn’t appear to be over yet,” he said.